National Oilwell Varco 2015 Annual Report Download - page 82

Table of Contents
risk. We control credit risk through credit evaluations, credit limits and monitoring procedures. We perform periodic credit evaluations of our customers’
financial condition and generally do not require collateral, but may require letters of credit for certain international sales. Credit losses are provided for in the
financial statements. Allowances for doubtful accounts are determined based on a continuous process of assessing the Company’s portfolio on an individual
customer basis taking into account current market conditions and trends. This process consists of a thorough review of historical collection experience,
current aging status of the customer accounts, and financial condition of the Company’s customers. Based on a review of these factors, the Company will
establish or adjust allowances for specific customers. Accounts receivable are net of allowances for doubtful accounts of approximately $159 million and
$125 million at December 31, 2015 and 2014.
Stock-Based Compensation
Compensation expense for the Company’s stock-based compensation plans is measured using the fair value method required by ASC Topic 718
“Compensation—Stock Compensation” (“ASC Topic 718”). Under this guidance the fair value of stock option grants and restricted stock is amortized to
expense using the straight-line method over the shorter of the vesting period or the remaining employee service period.
The Company provides compensation benefits to employees and non-employee directors under share-based payment arrangements, including various
employee stock option plans.
Environmental Liabilities
When environmental assessments or remediations are probable and the costs can be reasonably estimated, remediation liabilities are recorded on an
undiscounted basis and are adjusted as further information develops or circumstances change.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make
estimates and assumptions that affect reported and contingent amounts of assets and liabilities as of the date of the financial statements and reported amounts
of revenues and expenses during the reporting period. Such estimates include but are not limited to, estimated losses on accounts receivable, estimated costs
and related margins of projects accounted for under percentage-of-completion, estimated realizable value on excess and obsolete inventory, contingencies,
estimated liabilities for litigation exposures and liquidated damages, estimated warranty costs, estimates related to pension accounting, estimates related to
the fair value of reporting units for purposes of assessing goodwill and other indefinite-lived intangible assets for impairment and estimates related to
deferred tax assets and liabilities, including valuation allowances on deferred tax assets. Actual results could differ from those estimates.
Contingencies
The Company accrues for costs relating to litigation claims and other contingent matters, including liquidated damage liabilities, when such liabilities
become probable and reasonably estimable. In circumstances where the most likely outcome of a contingency can be reasonably estimated, we accrue a
liability for that amount. Where the most likely outcome cannot be estimated, a range of potential losses is established and if no one amount in that range is
more likely than others, the low end of the range is accrued. Such estimates may be based on advice from third parties or on management’s judgment, as
appropriate. Revisions to contingent liabilities are reflected in income in the period in which different facts or information become known or circumstances
change that affect the Company’s previous judgments with respect to the likelihood or amount of loss. Amounts paid upon the ultimate resolution of
contingent liabilities may be materially different from previous estimates and could require adjustments to the estimated reserves to be recognized in the
period such new information becomes known.
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